JUDGMENT V.K. Agrawal, Member (T)
1. The issues involved in all these 15 appeals, arising out of Order-in-Original No. 16/98 dated 7.9.98 and 60 to 62/98 dated 24.11.98 are whether the goods manufactured by the Appellants No. 1 & 2 are Ayurvedic Medicaments classifiable under Chapter 30 of the Schedule to the Central Excise Tariff Act or under Chapter 33 as Cosmetics, whether M/s. Shaherb Cosmetics are the related persons for the purpose of Section 4 of the Central Excise Act, whether extended period of limitation is invocable for demanding Central Excise duty and whether penalties are imposable on all the Appellants.
2.1 Shri Vivek Kohli, learned Advocate, submitted that M/s. Shahnaz Ayurvedics is a sole proprietorship concern of Ms. Shahnaz Hussain, having work premises at Okhla, New Delhi and NOIDA Phase II, U.P.; that they are engaged in the activity of manufacturing various Patent and Proprietory Ayurvedic Medicines since 1986; that from the time of initiation, their products were considered as P & P Ayurvedic Medicines by the Central Excise Department also and as such, they were not required to comply with Excise formalities; that, however, they were complying with the formalities stipulated under the Drugs & Cosmetics Act; that they have obtained a Drug Licence which has been renewed from time to time, that as of the present, the licence has been renewed till December 1999.
2.2 He mentioned that after the search of their premises by the Officers of the Department in April 1996, show cause notices were issued for demanding Central Excise duty and imposing penalties on the ground that the products manufactured by them were cosmetics under Chapter 33 of the Central Excise Tariff and not ayurvedic medicines; various chemicals used by them were commonly used in Cosmetics and were not declared by them to the licensing Authority and they and fraudulently obtained a licence under Drugs and Cosmetics Act; goods are being supplied to various hotels who were placing the orders as cosmetics and using the same as cosmetics / toiletries; that products have been sold primarily to beauty parlours or clinics and not to doctors or medical shop; in their various literature and products manual they have declared their products as cosmetics and products for care of skin and hair without any therapeutic claim, Shahnaz Ayurvedic and Shaherb Cosmetics having partners as Shahnaz Hussain and her son Sameer Hussain, are related concerns having mutuality of interest in each others business; that the extended period of limitation was also invoked for demanding the duty.
3.1 The learned Advocate, further submitted that the extended period of limitation under the Proviso to Section 11 A(1) of the Central Excise Act is not invocable because the Department was aware of all the facts regarding sales made to hotels, exports made by them as ayurvedic products and the literature describing the products as cosmetics and beauty care products; that the Department had raised the issue of classification of their products for the first time in 1987 pursuant to a visit of the Central Excise officers to their factory premises on 5.9.87; that those proceedings culminated in the order No. 51/89 dated 29.8.1989 passed by the Additional Commissioner, Central Excise, New Delhi, who had held that the products of the Appellants were, Ayurvedic Medicines and classifiable as such; that the Assistant Commissioner, MOD II, New Delhi had also held on 29.1.92 that the products of the Appellants are Ayurvedic Medicines; that in 1994, both the Assistant Commissioner, New Delhi and NOIDA, first provisionally approved the classification lists filed by them and after conducting the requisite enquiry and being satisfied of the claim of the Appellants, finally approved the same. He thus contended that in view of these facts, it cannot be held that the Department was not aware of the manufacturing activity or the true nature of their products nor can it be alleged that they had suppressed or concealed or mis-stated facts before the Department.
3.2 The learned Advocate, also contended that the Commissioner's observation in Para 48 of the impugned order dated 7.8.98 that new evidence had come to light during the course of the investigation conducted by the officers of the Anti-Evasion Directorate is not correct as no new evidence has been brought on record; that the impugned Order does not say what is the new evidence; that all evidence, which is relied upon now, was before the Additional Commissioner while passing the Order dated 29.8.1989. He mentioned that the Appellants had done all that they were supposed to do and required to do and all that it could do to bring to the notice of the Department and making it aware of the process employed by them to manufacture the impugned products and the correct classification of the same; that it is thereafter upon the Department to conduct such enquiry as it may have deemed fit and proper. He relied upon the decision in Commissioner of Central Excise, Calcutta v. Dewarance Manceill & Co. Ltd., 1991 (37) ECR 268 wherein it has been held that once the classification lists have been held approved by the Proper Officer, it cannot be said that the assessees were guilty of any suppression etc, misdeclaration, etc. and the Proper Officer could very well ask them to furnish the composition of the goods before it approved the classification list; that the Commissioner, in the present matters, has invoked the extended period on the basis that the Appellants did not argue or present the case as would have been favourable to the Department; that it is impossible to expect that they would judge and classify their products to the liking of the Department; that it is settled law that the onus of proof to establish and demonstrate the existence of the intention to evade duty is on the Department; that this would be clear from the judgment in Tamil Nadu Housing Board v. Commissioner of Central Excise, Madras, 1994 (55) ECR 7 (SC) wherein the Supreme Court has held as under:
"The initial burden is on the Department to prove that the situations visualized by the Proviso existed... When the law requires an intention to evade payment of duty then it is not mere failure to pay duty. It must be something more. That is, the assessee must be aware that the duty was leviable and it must deliberately avoid paying it."
3.3 The learned Advocate contended that the Department has not unequivocally demonstrated that the duty was evaded by them intentionally and wilfully; that it has been held in Commissioner of Central Excise, v. Chemphar Drugs & Liniments, 1989 (21) ECC 66 (SC): 1989 (21) ECR 182 (SC) that "in Order to make the demand for duty sustainable beyond as period of six months and upto a period of five years in view of the proviso to Sub-section (11A).... Something positive other than mere in action or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacture know otherwise, is required....." Reliance also has been placed on the following decisions-
(i) Cosmic Dye Chemicals v. Commissioner of Central Excise, Bombay, 1994 (48) ECC 55 (SC) : 1995 (58) ECR 232 (SC)
(ii) Prabhu Steel Industries Ltd. v. Commissioner of Central Excise, Nagpur, 1997(95) ELT 164 (SC)
(iii) CCE v. Muzzafarnagar Steels, 1989 (44) ELT 552 (T) ".... When the classification list was submitted before the Assistant Collector, he should have applied his mind carefully before approving the same. It is noteworthy that a person makes a declaration and prays in accordance with his understanding of the law and the facts. The presumption, if any, has to be that of bonafides unless proved otherwise. If the description of the goods was not considered as sufficient for the purpose of approval it was open to the Assistant Collector to have called for more details but it was not open to him to mechanically sign of."
(iv) Punjab National Fertilizers & Chemicals Ltd. v. CCE, 1991 (34) ECR 166 (T)
(v) Padmini Product v. CCE, Bangalore, 1989 (24) ECC 362 (SC) : 1989 (25) ECR 289 (SC) 3.4 The learned Advocate mentioned that the extended period of limitation has also been invoked on the ground that the Drug Licence for ayurvedic medicines was obtained fraudulently by concealing and mis-stating facts before the Drug Controller, the Chemicals being used by them were never declared before the Drug Controller; a show cause notice had been issued by Deputy Drug. Controller. He submitted that no facts had been concealed or suppressed or misstated before the Drug Controller while applying and obtaining the Drug Licence; that further the Authority to decide whether there was suppression before the Drug Controller or not is the Drug Controller itself and not the Central Excise Department; that Commissioner is conferring power upon herself which do not actually or legally vest in her. He relied upon the decision of the Supreme Court in Narendra Kumar Maheshwari v. Union of India, AIR 1989 SC 2138 wherein the Supreme Court has held as under:
"......it is difficult to enjoin that the CCI while considering the question of consent/sanction of the capital issues can fulfil any role beyond the policies prescribed under which.... he was enjoined to function........It is well to remember that every Authority in a vast developmental society must perform his role keeping in view the part he is expected to play in the background of the whole perspective and should not encroach upon other taking the onus upon himself to do everything. That would led to chaos and confusion."
3.5 The learned Advocate further submitted that the Drug Controller has already certified the subject products to be Ayurvedic medicines; that their licence has been again renewed for the period commencing 1.1.98 and ending 31.12.1999; that Mr. G.C. Lal, the concerned Deputy Controller, the licensing Authority, in his cross-examination has deposed that all information as required by the Drug Controller was given by the Appellants; all further information requested for by the Drug Controller was also given by them; expert opinion obtained by the Drug Controller Office clearly stated that their products are Ayurvedic medicines and the Drug Controllers office is, even today, satisfied that their products are Ayurvedic medicines. He also mentioned that as far as the allegation that the complete list of excipients used by them were not declared to the Drug Controller is concerned, the application for the license clearly stated the same; that the declaration of Cream base or quantity sufficient was made on all products; that wherever the Drug Controller required a clarification, the same was given and only thereafter was the product approved; that further, the standard practice in the Trade is that the complete list of excipients is given only if the Drug Controller asks for it otherwise the declaration is made only in 'cream base' or 'Quantity sufficient.' He, therefore, contended that there was no suppression or concealment or mis-statement on their part.
4.1 The learned Advocate contended that the correct classification of the products manufactured by the Appellants would be under Chapter 30 and not under Chapter 33 of the Central Excise Tariff; that there was no definition of 'Ayurvedic Medicines' given in the Central Tariff Act till 1994; that goods coming under sub-Heading 3003.03 including Ayurvedic medicines were exempted from duty under Notification No. 32/89-CE dated 1.3.89 and subsequently under Notification No. 9/93-CE dated 28.2.93; that in 1994 Notification No. 75/94 dated 29.3.94, exemption was not granted to all categories of medicaments under sub-Heading 3003.30; that a specific definition was provided to Ayurvedic Medicines by the said Notification as under:
(i) Medicaments used in Ayurvedic systems, manufactured exclusively in accordance with the formulae described in the Authoritative books specified in the First Schedule to the Drugs and Cosmetics Act and sold under the name specified in such books;
(ii) Medicaments used in bio chemic systems and not having a brand name; and (iii) Others.
4.2 He mentioned that thus a differentiation was made between Ayurvedic medicaments manufactured exclusively in accordance with the formulae described in the authoritative text-books and sold under name as specified under such books and ayurvedic medicaments manufactured otherwise in the matter of granting exemption from payment of duty; that the definition given in the Notification was incorporated in the Tariff Heading with effect from April, 1996 when the Tariff itself was amended; that this has also been the findings of the Larger Bench of the Tribunal in the case of Himtaj Ayurvedic Udyog Kendra v. Commissioner of Central Excise, Allahabad, 2002 (48) RLT 264; wherein it has been held that sub-Heading 3003.30 took in both classical as well as patent or proprietary ayurvedic medicaments and the distinction between the two was brought in for the first time in the Notification No. 75/94 and total exemption was limited to only the classical ayurvedic medicaments whereas 10% ad valoram duty was levied on P or P medicines; that the Larger Bench has held that the product of the Appellant therein, "having ingredients exclusively mentioned in the authoritative books, but manufactured and sold in the brand name 'Himtaj Oil', is Ayurvedic medicament even though not a classical one". He thus contended that the products containing ingredients specified in the Ayurvedic Texts but manufactured as per the formula of the Appellants would be patent or proprietary Ayurvedic medicines under sub-Heading 3003.39 of the Tariff. He also referred to decision in Richardson Hindustan Ltd. v. CCE, 1988 (16) ECC 145 (T) : 1988 (38) ELT 424 (T) wherein the Tribunal took the view that the products should be classified under sub-Heading 3003.30 if it was found that in the common parlance it was known as Ayurvedic medicine and all ingredients were mentioned in the authoritative books on Ayurvedic medicines and it is not necessary that the product is manufactured in accordance with the formulae in the text book; that the Civil Appeal No. 2127/88 filed by the Revenue was dismissed by the Supreme Court on 10.1.89. He also referred to the decision in Amritanjan Ltd. v. CCE, 2995 (77) ELT 500 (SC) 4.3 He also mentioned that the Department has relied upon the book "Shahnaz Hussain's Beauty Book" to claim that the products are cosmetics and not Ayurvedic medicines; that the said Book was authored for the purpose of the "Festival of India" organized by the Government of India in France, U.K. and various other countries in 1985; that the Book was meant to be sold only abroad; that in any case, the settled position of law is that a product cannot be classified in accordance with the nomenclature used by the manufacturer; that if reliance is placed upon the common trade parlance test, it is that test alone which decides the classification; that it has been held by the Supreme Court in ESPI Industries and Chemical Pvt. Ltd. v. CCE. 1996 (82) ELT 44 (SC) that "mere fact that it is also described as a beauty cream does not necessarily exclude it from being a barrier cream." Reliance has also been placed on the decision in Leukoplast India Pvt. Ltd. v. Union of India, 1986 (9) ECC 188 (Bom) : 1985 (20) ELT 70 (Bom) wherein it has been held that "Advertisement are published by the manufacturers of a product in Order to attract consumers and have nothing to do with the classification of the same product for levying of duty.....; that payment of duty under a particular tariff item must depend upon the facts of the case and not on the advertisement gimmicks of the advertiser." He has relied upon the following decisions also-
(i) Jayant Paper Mills v. CCE, 1984 (76) ELT 528 (T)
(ii) Mahabir Engineering Works v. CCE, 1994 (71) ELT 937(T) A product as known in the trade and commercial understanding is the guiding factor for classification of goods. Merely because the party had termed the goods as Iron Channel in Gate Passes, that description by itself is not sufficient to hold the goods as channels, unless it is shown that the goods satisfies the trade understanding and it is known in trade as such and also satisfies the function of a channel as understood in commercial understanding.
(iii) Peshawar Soap & Chem. Works v. CCE, 2001 (77) ECC 589 (T) : 2001 (138) ELT 855 (T) 4.4 He also said that the Commissioner has given a finding that for the purpose of Exports, M/s. Shahnaz Herbals have introduced the products as Ayurvedic Cosmetics as Countries like U.S.A. and U.K. do not allow any misdeclaration. The learned Advocate contended that M/s. Shahnaz Herbals are not party to the present proceedings at all; that even so, that the products have been described as Ayurvedic Medicines, P.P. Medicines and cosmetics (Volume 5-B of Paper Book); that only in the case of exports made to USA and UK; the products have been introduced as Ayurvedic Products since these countries do not recognize Ayurveda as a curative or medicinal science and before any product is allowed to be sold as medicine, it has to undergo very expensive trials; that as such, it is not possible for them to undertake the said exercise. He also mentioned that the products were sold in India as Ayurvedic medicines and the invoices clearly stated so; that products besides being sold to hotels, are being sold to Medical stores all over the country; that moreover they cannot be held responsible if hotels describe their products as cosmetics. He mentioned that volume 5-B of Paper Book contains name and addresses of medical stores purchasing and selling medicines of Shahnaz Ayurvedics in various cities.
5.1 The learned Advocate mentioned that the Appellants have brought on record various evidences in support of their contention that the products manufactured by them are medicaments. These evidences are:
(i) Affidavits of doctors /vaidyas and affidavits/letters from users.
These affidavits/letters clearly demonstrate that even in the common trade parlance and usage, the subject products are treated and perceived as Ayurvedic Medicines; the learned Advocate has referred to an affidavit of one Sardar Avtar Singh according to which after doing treatment for about three months which required him to visit Shahnaz Ayurvedics on a monthly basis and the use of their medicines twice a day, the itching and irritation totally stopped, his hair also stopped falling and dandruff also more or less totally cured, that one S.R. Choudhary, has thanked Shahnaz Hussain for the best ayurvedic medicine that were used for his daughter's skin disease eye cure and scalp care.
(ii) Client Prescription Cards.
Separate and individual records and prescription cards for each customer/client are maintained by Shahnaz Hussain Herbal. In these cards, all relevant information, such as history of the problem, treatment till date, allergies to any treatment, stage of the disease, etc., is taken from the patient. In the prescription charts, a record of the diagnosis of the problem, the suggested treatment, any precaution or restrictions in diet or otherwise, pathological tests, progressive report, etc. is maintained.
(iii) Clinical Test Reports.
Clinical tests of the products have been carried out on voluntary patients by the State Ayurveda Hospitals. Such test reports clearly show that their products are ayurvedic medicines only.
(iv) Charts of Medicines.
Those charts give break up of the active as well as inert ingredients use to manufacture the impugned products. All the active ingredients, which are herbal, find a mention in the authoritative books of Ayurveda which have been notified under the First Schedule to the Drugs and Cosmetics Act. All these active ingredients have therapeutic and prophylactic values. The excipients, which have been termed as chemicals by the Department, are inert and do not have any therapeutic or prophylactic values which would interfere with the working of the active ingredients.
5.2 The learned Advocate relied upon the decision in Union of India v. Parle Products P. Ltd., 1994 (74) ELT 492 (SC) wherein it has been held that common trade parlance can be determined only on the basis of evidence as to how the article is known and recognized by those in the trade/industry/commerce dealing with the product, Reliance has also been placed on the decision in Hindustan Ferodo Ltd. v. Commissioner of Central Excise, 1997 (89) ELT 16 (SC) and Hindustan Lever Ltd. v. Commissioner of Central Excise, 1985 (19) ELT 562 (T) wherein the Tribunal has held that the sense of expressions as ordinarily understood by trade and consumers will have to be given precedence over their technical sense. He also mentioned that affidavits, certificates produced by them cannot be arbitrarily rejected and that the correctness of affidavits can be challenged by the Adjudicating Authority by cross-examining the deponent as held by the Bombay High Court in Subhash Chandarnishat v. Union of India, 1979 ELT ) 212 (Bom), The Tribunal also held in Commissioner of Central Excise v. Amaratara Industries, 1988 (17) ECC 229 (T): 1988 (37) ELT 152 (T) that it would not be proper for the officer to reject affidavits summarily on his own subjective opinion without disclosing any basis therefore. He also referred to the decision in Union of India v. Vicco Laboratories, 2000 (123) ELT 431 (Bom) in which the Bombay High Court, on the basis of evidence led by the plaintiff in the form of examination of general practitioners of Ayurvedic medicines as well as an expert, dentist, chemists and users has held that the products are medicines.
5.3 The learned Advocate also referred to the Board's Circular no. 196/30/96 CX dated 3.4.1996 wherein it has been clarified that the benefit of Notification No. 75/94-CE should not be denied to Ayurvedic medicines if they are manufactured in accordance with the formulae prescribed in the authoritative text books and sold under the generic name mentioned in the said textbooks but contain preservatives, inert excipients, binding agents etc. not having any therapeutic value. He also relied upon the decision in Ishaan Research Laboratories P. Ltd. v. Commissioner of Central Excise, Final Order No. 381-396/2000-C dated 28.8.2000 wherein the products curing Scalp Infections, Excessive hairfall, Eczema, Psoriasis, Pigmentation, Patches, Foot Infections, Alopecia, Acne, Pimples and Scabies have been allowed as Ayurvedic Medicines.
5.4 Finally, the learned Advocates gave three lists containing names of products as under:
List I containing names of 30 products which he conceded are not Ayurvedic medicines.
List II containing names of 62 products which, according to him are Ayurvedic medicines and covered by the decision in Ishaan Research Laboratories case.
List in containing names of products which, according to him are borderline products.
6.1 Coming to the question of related person, the learned Advocate mentioned that the basis on which the Commissioner has treated Shahnaz Ayurvedics as related person to Shaherb Cosmetics is that Shahnaz Hussain is the proprietress of Shahnaz Ayurvedics and she alongwith her son, Sameer Hussain, is a partner in Shaherb Cosmetics and Shaherb Cosmetics take care of the advertising, selling and distribution expenses of Shahnaz Ayurvedics which sell 97% of their production through Shaherb Cosmetics to distributors and 1-2% is sold directly to bulk customers like Indian Airlines, Hotels, etc. 6.2 He submitted that the price at which the remaining 3% goods are sold is less than the price at which goods are sold to Shaherb Cosmetics; that as such the transactions are at arms length on a principal to principal basis; that to qualify as a related person, it is necessary that he be a distributor who is a relative; that as held by the Supreme Court in Union of India v. Bombay Tyre International Ltd., 1984 ECC 102 (SC) : 1983 ELT 1896 (SC) it is not sufficient to be either to qualify as a related person; it is necessary to be both; that in the present case, the Department has not even alleged that Shaherb Cosmetics is a distributor of Shahnaz Ayurvedics; that as a matter of fact Shaherb Cosmetics is not a distributor of Shahnaz Ayurvedics.
6.3 He, further, submitted that for a person to fall within the category of 'related person' it is necessary that both the seller and the buyer have a mutual interest in the business of each other; that one of them having an interest in the business of the other is not sufficient to hold that they are related persons; that it has been held in M.P. Steel Works v. Commissioner of Central Excise, 1998 (98) ELT 552 (T) that mutuality of business of assessee and partnership firm has to be established before two firms can be considered as related and mere relationship between partners of two firms is not sufficient. Reliance has also been placed on the decision in Commissioner of Central Excise v. T.I. Millers Ltd., 1988 (17) ECC 56 (SC) : 1988 (35) ELT 8 (SC) wherein it has been held that "the assessee and the person alleged to be a related person must have interest, direct or indirect in the business of each other. Each of them must have a direct or indirect interest in the business of the other." He contended that admittedly Shaherb Cosmetics has no interest in the business of Shahnaz Ayurvedics and it has not even been alleged so in the show cause notice; that the Department has neither adduced any evidence for and nor established that there is any mutuality in the business of both the firms. He also contended that separate independent units, even if they are owned by husband and wife, are not liable to be termed as related person until and unless the mutuality of business is first established by the Department. Reliance has been placed on the decision in Cooling Systems v. Commissioner of Central Excise, 1997 (90) ELT 329 (T).
6.4 He also submitted that the fact that the entire production is sold to Shaherb Cosmetics is irrelevant in the determination of the question of the related person as held by the Tribunal in Commissioner of Central Excise v. Besta Cosmetics Ltd., 2000 (116) ELT 293 (T); that what must be established is that the price declared by the Assessee is a depressed price and it is receiving some extra commercial consideration; that the evidence in this regard is conspicuous by its absence; that even there is no allegation in the notice that Shahnaz Ayurvedics are receiving any extra commercial consideration; that factually there is no flow back from Shaherb Cosmetics to Shahnaz Ayurvedics; that the Tribunal has held in Vibgyor Chemicals v. Commissioner of Central Excise, 1997 (92) ELT 513 (T) that for treating a person as a related person, there must be mutuality of interest or there must be flow back of money; that what has been alleged is a flow from Shahnaz Ayurvedics to Shaherb Cosmetics which besides being meaningless and of no consequence is factually incorrect; that the outstanding of Shaherb with reference to Shahnaz Ayurvedics was only 2-3 months credit which is mandatorily required to be given in the market; that as there is no flow back from buyer to the manufacturer, it is immaterial that the manufacturer is selling at a cost which is lower than its cost price also; that it has been held in Commissioner of Central Excise v. Polychem Ltd., 1997 (91) ELT 585 (T) that if the transactions are at arm's length and there is no flow back of money from the buyer to the assessee, even if the price declared is below the manufacturing, the same should not be rejected as incorrect. He emphasized that as held by the Supreme Court in Philips India Ltd. v. Commissioner of Central Excise, 1997 (91) ELT 540 (SC) that in Adjudicating matters of this nature "the excise authorities would do well to keep in mind legitimate business considerations/' He mentioned that the mere fact there are some outstandings is meaningless by itself as even if products has been marketed through some other concern, Shahnaz Ayurvedics would have had to give credit. He further mentioned that the gross profit earned by Shaherb Cosmetics is not more than 20% and in fact in some of the years it was as low as 10%; that on the other hand, the gross profit earned by Shahnaz Ayurvedics at the end of even one of the years under consideration was not less than 50% and in some of the years it was as high as 70%; that as such it is quite apparent that no part of the profit that should have accrued to Shahnaz Ayurvedics has been passed on to Shaherb Cosmetics.
7. Finally, the learned Advocate submitted that penalty under Section 11AC of the Central Excise Act imposed on Shahnaz Ayurvedics is untenable in law as the said Section was introduced in the Act only on 28.9.96; that penalty under Section 11 AC cannot be imposed in respect of any duty confirmed for a period prior to the said date. He relied upon the decision in Marcandy Prasad Radhakrishna Prasad P. Ltd. v. Commissioner of Central Excise, 1998 (102) ELT 705 (T) and 1999 (107) ELT A121. He also submitted that once penalty has been imposed on the proprietorship or partnership concern, no penalty can be imposed upon the proprietors or partners and relied upon the following decisions
(i)Shree Trimula Udyog v. CCE, 1995 (77) ECR 169 (T)
(ii) Puran Mal Bansal v. CCE, 1998 (100) ELT 482 (T)
(iii) Tara Singh & Sons v. CCE, 2001 (132) ELT 173 (T) 8.1 Countering the arguments, Shri Swamy, learned Advocate for the Revenue, submitted that the impugned goods are nothing but herbal cosmetics; that even if they have some therapeutic abilities, they would remain classifiable under Chapter 33 of the Central Excise Tariff; that the principal criterion for considering any product as a medicament would be its use for the mitigation or prevention of a disease; that a product which does not make a claim to cure or mitigation of any ailment it cannot be considered a medicine falling under Chapter 30, irrespective of its constituents and process of manufacture; that the products in question are suntan creams, under eye creams, skin cleaners, skin tonics, rejuvenating skin creams, peel off skin treatment .cream, hair treatment gel, etc., that the therapeutic or prophylactic claims are subsidiary to the properties of soothing, protecting, cleansing, conditioning, etc. The learned Advocate for the Revenue mentioned that the Commissioner has given a specific finding that the literature/brouchers, quoted in the showcause notice, conclusively establish that the impugned products are cosmetics and toilet preparations; that in the introduction to the Book "Shahnaz Hussain's Beauty Book'', Ms. Shahnaz Hussain has stated that after seeing the ill-effects of synthetic products abroad after schooling in famous beauty houses, she decided to try and find a natural alternative; that she knew "that India has vast store house of tried and trusted herbal remedies which could be applied to beauty" and "So I started propagating the use of herbs. I changed all my magic formulas into reality..... Into herbal creams, lotions, powders, packs cures and remedies." The learned Advocate referred to the following Paragraph from the said Book in support of his submission that the products are cosmetics;
"I took the opportunity to direct would focus on herbal cosmetics, highlighting the immense scope of Indian herbal remedies in the international Cosmetic Market."
8.2 The learned Advocate, further, mentioned that Heading 33.04 covers "Beauty and make up preparations and preparations for the care of the skin (other than medicaments) including sunscreen, suntan preparations that Note 5 to Chapter 33 and the Explanatory Notes of HSN clarify that the said Heading includes not only beauty creams but also vanishing creams, cold creams, make up creams, cleansing creams, skin foods, skin tonics, beauty lotions, face powders body powders, toilet powders, talcum powders and grease paints, lipsticks, eye shadow and eye brow pencils, etc. but also barrier creams to give protection against skin irritants, anti-acne preparations etc. whether or not they contain subsidiary pharmaceutical antiseptic constituents or are held out as having subsidiary curative or prophylactic value.
8.3 The learned Advocate also contended that the Charts of medicines, affidavits of doctors, vaidyas and the letters from users, clinical test reports, client cards etc. do not establish that the products in question are Ayurvedic medicines or these products were being used for the treatment or mitigation of the various diseases; that the so called; 'clinic' is not a medical clinic but a 'beauty clinic'; that the client cards only indicate as how to use the beauty products which is apparent from the perusal of the cards in Volume 5 C; that it is mentioned in one card that 'clean face with shacleanse"; that properties of shacleanse as described in booklet are "Rehydrant cleanser, for removing dirt and stale make-up without moisture loss"; that the Certificate and field clinical tests are in very general terms and do not conclusively prove any thing. He referred to a Certificate of State Ayurvedic Hospital (Page 61 A-Vol 6) which certifies that Shahnaz Hussain's range of product clinically tested were found to be safe and effective as claimed on the labels of the products; that name of the product, the period for which the same was tested etc. are not mentioned in the Certificate. He, therefore, contended that all these material do not advance the case of the Appellants.
8.4 The learned Advocate, on the other hand, referred to the opinion given by Dr. S.K. Sharma, Advocate Indigenous systems of Medicine, Ministry of Health and Welfare who had opined as under:
(i) The drug licence issued to Shahnaz Ayurvedics is not properly examined for various requirements before issuing a licence, e.g. method of preparation, indication, centra-indications, doses of medicines, clinical trial evidence etc. Therefore, needs correction by the licensing Authority, NCT, Delhi.
(ii) The firm has violated the norms by preparing medicines by adding number of ingredients which are not declared in the original paper of the drug licensing.
(iii) Dozens of the chemicals used in the medicines are not Ayurvedic.
(iv) The medicines are predominantly sold as Ayurvedic/Herbal cosmetics but not as patent proprietary Ayurvedic medicines.
8.5 The learned advocate, emphasized that the Adjudicating Authority, while Adjudicating the matter, has gone by the principles laid down by the Supreme Court in Shree Baidyanath Ayurved Bhawan Ltd. v. Commissioner of Central Excise, Nagpur, 200 2 (82) ECC 460 (SC) : 1996 (83) ELT 492 (SC). The Apex Court has held as under:
"........in interpreting statutes like the Excise Act the primary object of which is to raise Revenue and for which purpose various products are differently classified, resort should not be had to the scientific and technical meaning of the terms and expressions used but to their popular meaning, that is to say, the meaning attached to them by those using the products."
He contended that the Commissioner has adjudicated the matter on the basis as to how the users are going to use the impugned products. He referred to the article by John Ellison in ''Cosmetics World News" in which he mentions about "beautician Shahnaz Hussain who sells her herbal products in London & Parts" and the Article in "Arab News" according to which "India's well known herbal beautician Shahnaz Hussain has cautioned Middle Eastern Women against the use of Western Synthetic Cosmetics" and it is mentioned that herbal Cosmetics are ideal for skin. The learned Advocate also mentioned that the customers of the impugned product treat them as cosmetics which is apparent from the Order dated 27.11.93 placed by Hotel Agra Ashok for "Shampoo Bottles packed in 8 ml" and not for medicine or from the Order placed by Hotel Chandela, Khajuraho which was for Daily Wash Shampoo, Moisturisers, Talcum Powder, Body Gel, Mouth Wash, Tooth Paste. He also highlighted the fact that for the purpose of Central Excise, the products are Ayurvedic medicines and for the purpose of exports they are cosmetics. Reliance has also been placed on the decisions in Union of India v. Garware Nylons Ltd., 1996 (87) ELT 12 (SC) wherein it has been held that the expressions occurring in Central Excise Tariff should be understood in the sense in which the persons who deal in such goods understand it normally, and in the case of Chemical & Fibres of India Ltd. v. Union of India, 1997 (99) ELT 633 (SC) wherein it has been held by the Supreme Court that when Tariff Entry uses commercial words, "We will have to examine that term in the light of how it is understood in the trade," The learned Advocate also relied upon the decision in Commissioner of Central Excise v. Fusebase Elloto Ltd., 1993 (67) ELT 30 (SC) wherein the Apex Court has held that "The identity of an article is associated with its primary function and utility. The names of certain products have functional association in the mind of the consumers. There is a mental association in the mind of the consumer in respect of certain products keeping in view of the utility of the product and also the reputation the name of the product has acquired in the market and among the consumers." He contended that there is sufficient material brought on record to show that the impugned products are treated as cosmetics only by the consumers; that even in B.P.L. Pharmaceuticals Ltd. v. Commissioner of Central Excise, 1997(58) ECC 96 (SC) : 1995 (77) ELT 485 (SC) the Supreme Court classified the product 'Selsun' on the basis of common and commercial parlance understanding of the product. 8.6 The learned Advocate for the Revenue mentioned that decision in the case of Himtaj Ayurvedic Udyog Kendra is not applicable as the facts are different; that in the said decision it has been held that the product would be classified as medicament if it is known in common parlance as Ayurvedic medicine; that after considering the use of 'Himtaj Tel' which was on scalp and to be used only for a limited period and also the report of Chief Chemist and literature, the Tribunal came to the finding that Himtaj Tel was not for use as cosmetics but as medicine. He, on the other hand, relied upon the decision of the Larger Bench in the case of Baidyanath Ayurved Bhawan v. Commissioner of Central Excise, Patna, 2002 (82) ECC 185 (LB) : 2002 (48) RLT 897 (CEGAT-LB), wherein the Tribunal has classified 'Dant Manjan Lal' containing ingredients mentioned in authoritative text book on Ayurveda under Heading 33.06 as a tooth powder. He also mentioned that the decision in Ishaan Research Laboratories case is not applicable as the said matter was decided on the basis of expert's report which had not been rebutted by the Revenue; that moreover products in the present appeals are different and there is no report specific to the impugned products. He, therefore, contended that the impugned products are Cosmetics and Toilet preparations under Chapter 33 of the Tariff.
9. He submitted that the extended period of limitation for demanding duty is invocable as there was wilful mis-statement and suppression of facts on the part of the Appellants inasmuch as the products were claimed to be cosmetics in various literatures and to the buyers whereas the same were mis-declared to be ayurvedic medicines to the Central Excise Authorities; that the evidences which have come to light during the course of present investigation were not before the officers who had earlier passed the orders inasmuch as they had no knowledge that Shahnaz Hussain herself, has described these products as herbal cosmetics/beauty creams/ etc. in her Book and in the advance licence application for fixation of input-output norms under DEEC Scheme; that in letter dated 12.11.94 addressed to the Directorate General of Foreign Trade, Shahnaz Ayurvedics had called themselves as a manufacturer and exporter of foremost brand of herbal and ayurvedic cosmetics from India; that they are also classified as exporters of cosmetics and toiletries by 'Chemexcil"; that there is no evidence to show that the kind of evidence that has now been gathered was ever brought to the knowledge of the Officers who passed the Orders; that the Appellants cannot take shelter of those orders classifying their product as ayurvedic medicines; that moreover all the information, now gathered after investigation, was not available at one place; that thus it cannot be claimed by the Appellants that the Department was aware of all the relevant facts; that the Appellants had also not declared all the ingredients used by them while applying for the Drug licence; that various chemicals were not declared even on the labels of the products.
10.1 Regarding the charge of Shahnaz Ayurvedics and Shaherb Cosmetics being 'related person', the learned Advocate submitted that Shaherb Cosmetics in which Shahnaz Hussain, Proprietors of Shahnaz Ayurvedics, is Partner with her son Sameer Hussain; that Shaherb is distributor and relative and as such is related person; that 97% of the Production is sold to Shaherb Cosmetics who then sell the same to distributors, etc.; that the prices at which Shaherb Cosmetics sell these products are much higher than the prices at which the same are sold by Shahnaz Ayurvedics to Shaherb Cosmetics; that the profit so earned is used for advertising, selling and distribution expenses which normally form part of the assessable value; that extra-ordinary financial accommodation was allowed to Shaherb Cosmetics by the Appellant No. 1 inasmuch as at the end of each accounting year Shaherb Cosmetics was liable to pay huge sum to Shahnaz Ayurvedics; that they had not made any provision for getting any advance or for charging any interest from Shaherb Cosmetics; that Shri Ashwani Sharma, Manager Excise of Shahnaz Ayurvedics, has deposed that Shaherb Cosmetics forms part of Shahnaz Group of Companies and their records were found at the premises of "Shahnaz Hussain Corporate Office" in Greater Kailash Part I, New Delhi. He also referred to the findings of the Commissioner in the impugned Order to the effect that in Deeds of Agreement entered into by Shaherb Cosmetics with the various distributors, they were referred to as the supplier of Shahnaz Ayurvedic Products; that they were appointing distributors for the products; were approving advertisements to be given by the distributors in local papers, running a School of Beauty Therapy and a clinic at Greater Kailash Part I; were singing franchise agreements with parties interested in opening Shahnaz Herbal Clinics; Beauty School or Flower Power Body Shops. He also mentioned that investigation carried out by the Department revealed that the products were not available for sale to any other domestic buyer in the course of wholesale trade, except the airlines and Hotels which are a different class of buyers, at the prices and on the terms and conditions at which these were being sold to Shaherb Cosmetics; that the first point at which the impugned goods were sold in the course of wholesale trade was the point of sale by Shaherb Cosmetics. He also pointed out that the distributors, as per agreement, undertook to buy against full payments for a minimum value specified in the agreement and would also give a lump sum interest free security deposit as specified in the agreement; that the goods would be supplied by the distributors at wholesale prices determined by Shaherb Cosmetics. The learned Advocate for the Revenue emphasized that no manufacture would give credit running into crores of rupees to a buyer in the normal course of business. Reliance has been placed on the decision in Calcutta Chromotype Ltd. v. Commissioner of Central Excise, Calcutta, 1998 (60) ECC 1 (SC) : 1998 (99) ELT 202 (SC).
10.2 He mentioned that once it is found that the persons behind the manufacturer and the buyer are the same, the regard being had to be normal course of natural events, human conduct and public and private business, it can be presumed that they have interest, directly or indirectly in the business of each other; that the Supreme Court has observed in Calcutta Chromotype case that "it will depend upon the facts and circumstances of each case and it will have to be seen who is calling the shots in both the assessee and the buyer. When it is the same person the authorities can certainly fall back on the third proviso to Clause (a) of Section 4(1) of the Act, to arrive at the value of the excisable goods." He contended that considering all the circumstances cumulatively, Shahnaz Ayurvedics and Shaherb Cosmetics are related persons inasmuch as in both concerns the shots are called by Ms. Shahnaz Hussain.
11. In reply Shri Kohli, the learned Advocate for the Appellants, submitted that there is no finding by the Commissioner in the impugned Order that the Shaherb Cosmetics is a distributor; that a distributor never buys the goods as he stocks the goods and gets a commission and placed reliance on the decision in Commissioner of Central Excise, Surat v. Besta Cosmetics Ltd., 2000 (116) ELT 293 (T). He also contended that the Revenue has not proved depression of prices at which goods are sold by Shahnaz Ayurvedics to Shaherb Cosmetics and that Shaherb Cosmetics is not earning high profits.
12.1 We have considered the submissions of both the sides.
As per Note 2 to Chapter 30 of the Central Excise Tariff "Medicament means goods (other than foods or beverages) such as dietetic, diabetics or fortified foods, tonic beverages) not falling within Heading No. 30.02 or 30.04 which are either:
(a) Products comprising two or more constituents which have been mixed or compounded, together for therapeutic or prophylactic uses; or
(b) Unmixed products suitable for such uses put up in measured doses or in packings for retail sale or for use in hospitals."
12.2 It is thus apparent from Note 2 to Chapter 30 that any product for being treated as medicament must have therapeutic or prophylactic uses. It is the requirement for being classified under Heading 30.03 of the Tariff that the therapeutic or prophylactic uses must be the main uses of the product. The mere fact that some ingredients are mentioned in the Authoritative text books on Ayurveda would not make the product a "medicament'' within the meaning assigned to the said term in Note 2 to Chapter 30. This is also evident from Note 1(d) to Chapter 30 which mentions that "This Chapter does not cover preparations of Chapter 33 even if they have therapeutic or prophylactic properties." A reading of Note 1(d) with Note 2(i) to Chapter 30 makes it very clear that preparations which fall under Chapter 33 even if they have therapeutic or prophylactic properties are not covered under Heading 30.03 as medicaments.
12.3 This view is further strengthened by Note 2 to Chapter 33 of the Tariff, dealing interalia with "Cosmetics or Toilet Preparations. As per this Note, Heading No. 33.03 to 33.07 would remain classified under Chapter 33 "whether or not they contain subsidiary pharmaceutical or antiseptic constituents, or are held out as having subsidiary curative or prophylactic value."
12.4 Heading Nos. 33.03 to 33.07 cover the following products:
(i) Heading 33.03 : Perfumes and toilet waters
(ii) Heading 33.04 : Beauty or make up preparations and preparations for the care of the skin including sunscreen and suntan preparations, manicure or pedicure preparations.
(iii) Heading 33.05 : Preparations for use on the hair.
(iv) Heading 33.06 : Preparations for oral or dental hygiene including dentifrices and denture fixative pastes and powders.
(v) Heading 33.07 : Pre-shave, shaving or after-shave preparations, personal deodorants, bath preparations, depilatories and other perfumery cosmetics or toilet preparations; prepared room deodorizers.
12.5 On combined reading of Note 2 to Chapter 33 and Note 1 (d) to Chapter 30, it is clear that preparations of Chapter 33 even if they contain subsidiary pharmaceutical or antiseptic constituents or are held out as having subsidiary curative or prophylactic value remain classified in Chapter 33. The Apex Court in Shree Baidyanath Ayurved Bhawan case, supra, did not agree with the contention of the manufacturer that their product "Dant Manjan Lal" is an ayurvedic medicinal preparation for dental care. The Supreme Court has held that "ordinarily a medicine is prescribed by a Medical practitioner and it is used for a limited time and not everyday unless it is so prescribed to deal with a specific disease like diabetics."
13.1 The learned Counsel for the Revenue has emphasized the importance of test of common and commercial parlance in determining the classification of a product under Central Excise Tariff. It has been held by the Tribunal in Shree Baidyanath Ayurved Bhawan, 1985 (22) ELT 844 (T) that Drugs and Cosmetics Act has been enacted to prevent manufacture of the products covered by the Act in a sub-standard manner whereas "the object of the Excise Act is to raise Revenue, and for this purpose to classify substances according to the tariff entries or according to general usage and known denominations of trade and therefore, for the purpose of classification under the Central Excise Tariff, the provision contained in Drugs and Cosmetics Act cannot be resorted to." On Appeal filed by Shree Baidyanath, the Supreme Court affirmed the said view of the Tribunal by holding as under as reported in 1996 (83) ELT 492 (SC)-
"The Tribunal rightly points out that in interpreting statutes like the Excise Act the primary object of which is to raise Revenue and for which purpose various products are differently classified, resort should not be had to the scientific and technical meaning of the terms and expressions used but to their popular meaning; that is to say, the meaning attached to them by those using the product. It is for this reason that the Tribunal came to the conclusion that scientific and technical meanings would not advance the case of the Appellants if the same runs counter to how the product is understood in popular parlance."
13.2 Both the Tribunal and the Supreme Court did not accept the Certificates and affidavits given by the Vaidyas and statements of the consumers as well as the description given in certain Ayurvedic Books and held that the product is not an ayurvedic medicine. Under the present Central Excise Tariff, the question regarding classification of Dant Manjan Lal came up for consideration of the Larger Bench in 2002 (48) RLT 897 wherein the manufacturer contended that the product is manufactured as per the formulae prescribed in the book 'Ayurveda Bar Sangreh' and are also using the same name and the book is included in the First Schedule to Drugs and Cosmetics Act, 1940. They had also produced Certificates by two doctors which showed that each ingredient has therapeutic/prophylactic properties. The Larger Bench held that "Assuming that 'Dant Manjan Lal' has some minor curative or prophylactic ingredients, by virtue of Note 2 of Chapter 33, the product has to be classified as tooth powder classifiable under sub-Heading 3306 of the Tariff.
13.3 The learned Advocate for the Revenue has sufficiently shown by referring to the articles in Newspapers magazines that the impugned products manufactured by M/s. Shahnaz Ayurvedics are regarded as beauty care products; customers place Order for the goods as cosmetics and toilet preparations and not as medicines. The learned Advocate 'for Revenue has rightly emphasized that the products which are exported as cosmetics cannot be called Ayurvedic medicine for home consumption in India. Medicines is medicine and it cannot be both medicine for local people and cosmetics for people abroad. No doubt the advertising material cannot be made the sole basis for determining the classification. However, the broucher/literature or book written by the Proprietress of the firm would explain as to what the products are and what is the perception of the products. The Commissioner has quoted extracts from "Shahnaz Hussain's Beauty Book" in Paragraph 22 of the impugned Order which clearly brings out that the products are perceived as beauty care products. According to the said Book, the treatments and cosmetics suited to white skins may not be the answer to Indian problems and that India has vast store house of tried and trusted herbal remedies which could be applied to beauty. "I changed all my magic formulas into reality....Into herbal creams, lotions, powders, packs, cure and remedies." It is also mentioned in the Book that "I took the opportunity to direct world focus on herbal cosmetics highlighting the immense scope of Indian herbal remedies in the international Cosmetic Market. I pointed out that there was no reason why herbal cosmetics manufactured in India should not find a prominent place in international stores, with their therapeutic values and element of safety." It is thus apparent that the products are cosmetics falling under Chapter 33 of the Tariff and they may have some therapeutic or prophylactic value which does not take them away from Chapter 33 in view of Note 2 to Chapter 33 and Note l(d) and 2(i) to Chapter 30. The learned Advocate for the Appellants has referred to the list of Medical stores purchasing/selling their products. He has also referred to their invoices in which the products have been sold as Ayurvedic Medicines. In our view the argument does not advance the case of the Appellants as it is general knowledge that Medical Stores sell cosmetics also besides medicines. Mere mention of words "Ayurvedic medicines" in invoices would not make the products as medicines which are for skin treatment etc. The Revenue has contended that the Affidavits/Certificates given by doctors/users/patients are in very general terms. For example Dr. D.R. Khurana has mentioned in his affidavit that he has been prescribing Shahnaz Ayurvedic Medicines to a large number of his patients for their skin like problems of the scalp and the body and these medicines have shown good results. He has mentioned neither the name of the products prescribed by him nor the disease they have cured. Similarly, Dr. Nandini Sharma has found Shahnaz Hussain's products effective in case of falling hair/dark shades of spotting or patches on the skin. Maharshi Chark Ayurveda Centre's Certificate is quite vague as it simply mentions that he has been regularly prescribing "Shahnaz Hussain's Herbal Products to my patients for the treatment of hair and skin disease." Again no mention of what disease and no mention of product. Further, he is not referring the products as medicines but herbal products. Number of persons have mentioned falling of hairs in their letters. The maintenance of client cards cannot change the products from being cosmetics to medicine. A reading of Personalised prescription of Shahnaz Hussain reveals that these prescriptions are for care of skin, hair, body etc. as the various things mentioned therein are -- Hair treatment, Facial Hair, skin treatment, scalp treatment, body treatment, eyes, lips and any other. Mere calling records as "Client's Card' and "Prescription" would not mean that the products are medicines. It is, for example, mentioned in one of Client's Card as under:
Treatment Given -- Ayurvedic Face Scrub treatment thrice a week 13.4 Notes 5 and 6 to Chapter 33 also make it clear that the impugned Products are cosmetics only. These Notes read as under:
"5. Heading No. 33.04 applies, inter alia, to the following products: beauty creams, vanishing creams, cold creams, make-up creams, cleansing creams, skinfoods, skin tonics, face powders, baby powders, toilet powders, talcum powders and grease paints, lipsticks, eye shadow and eyebrow pencils, nail polishes and varnishes, cuticle removers and other preparations for use in manicure or chiropody and barrier creams to give protection against skin irritants.
6. Heading No. 33.05 applies, inter alia, to the following products; brilliantines, perfumed hair oils, hair lotions, pomades and creams, hair dyes (in whatever form), shampoos, whether or not containing soap or organic surface active agents."
13.5 Applying these Notes and common parlance principle, enunciated by the Supreme Court, the products manufactured by the Appellants are products for care of skin or beauty or make up preparation or preparation for use on the hair or preparation for oral or dental hygiene. The learned Advocate for the Appellants has himself conceded that 30 products are not Ayurvedic medicine. This list includes products such as 'Flower Powder -- Ayurvedic After Bath Body treatment Lotion', 'Herbbase', Honey Health Ayurvedic Freshness Lotion ((Skin Tonic), Shacure (useful in acne & skin inflammation), etc. In respect of another 30 products, he has mentioned that these are borderline cases. These products, on perusal, also are products falling under Chapter 33 of the Tariff. For example "Himalyan Herb Ayurvedic Deep skin treatment cream" is nothing but a product for care of skin. The learned Advocate himself has mentioned that Flower Powder--Ayurvedic Deep skin Treatment cream is not Ayurvedic medicament. Further, "Shasmooth" is Almond under Eye cream, Shaglow is honey intensive Moisturising Cream. 'Shahsmule Paste' is for treatment for dental health which is covered by Heading 33.06. Similarly "Flower Power Ayurvedic Hair Conditioning Lotion" is a preparation for use on the hair. Product 'Flower Power Ayurvedic Honey Intensive Cream" has been mentioned in both List I and List III.
13.6 Similarly a perusal of products mentioned in List II, claimed to be Ayurvedic Medicines by the learned Advocate for the Appellants, reveals that these are also products for care of the skin, as explained in Note 4 to Chapter 33 of the Tariff, preparations for use on the hair, as explained in Note 5 to Chapter 33 and are cosmetics and toilet preparation mainly. For example Product namely 'SHACARE' mentioned in List II, is a hair food which stimulates hair follicles and arrests hair loss; "SHAHAIR" controls hair loss and also cures dandruff; Herbmoon (Sandalwood Cleansing Milk) has a deep cleansing and protective action which helps prevent acne and pimple; "Himalayan Herb snow Night cream' is for dry dehydrated and mature skin, restores skin balance and is useful in skin disorders; "Flower Power Hair Salad" provides proper nutrition to the hair follicles, regular use delays graying, strengthens hair roots and is useful in Alopecia, dandruff and other scalp disease; "Flower Power Antiseptic cream" cures acne and spots and replenishes the skin moisture. It is thtis seen that the basis for treating all these products as Ayurvedic Medicines by the Appellant is in their manufacture, ayurvedic ingredients have been used and so these are medicines. These ingredients may have some therapeutic or prophylactic value as mentioned in the Ayurvedic Books but these are mainly cosmetics in common parlance and applying Note 2 to Chapter 33 read with Note 1(d) and 2(i) to Chapter 30, these would remain classifiable in Chapter 33 even if they contain subsidiary pharmaceutical or antiseptic constituents, or are held out as having subsidiary, curative or prophylactic values. This was also the view of the Larger Bench of the Tribunal in Baidyanath Ayurved Bhawan v. Commissioner of Central Excise, Patna, 2002 (82) ECC 185 (LB): 2002 (48) RLT 897 wherein the Larger Bench confirmed the classification of the Product comprising of several ingredients and manufactured according to the formula prescribed in the book included in the First Schedule to the Drugs and Cosmetics Act, under Heading No. 33.06 and not under Heading 30.03 of the Central Excise Tariff.
13.7 The learned Advocate has mentioned that Products, namely, "Shaeyes", "Shadrink" and Shahnaz Hussain -- Thandai Powder would not be classifiable as Ayurvedic Medicines as they would fall under Chapter 33 and 21 of the Tariff. As such these products are also not classifiable as Ayurvedic Medicines. It is observed that these products are also made of ingredients mentioned in Authoritative Ayurvedic Text Book such as Bhav Prakash and medicinal uses include cure vomiting, diarohea, mitigate Pitha, mitigate Kapha & Vata, cure itching & eye disease. For these reasons, we do not find any force in the submissions of the Appellants that the following products are Ayurvedic Medicines for Pet-
(i) Sha Pet -- Ayurvedic Antiseptic Balm
(ii) Sha Pet -- Ayurvedic Antiseptic Skin Oil.
(iii) Sha Pet -- Anti Parastic Lotion
(iv) Sha Pet -- Ayurvedic Anti Tick Hair Lotion
(v) Sha Pet--Ayurvedic Hair Cream Balm.
For example product No. (i) above is to provide proper nutrients to Pet's hair and acts also as a protectant against skin infections; Regular use prevents skin infestations and infections.
13.8 The learned Advocate has contended that in respect of the following products, the Department has classified them as Ayurvedic medicaments in subsequent proceedings. As the Revenue has not rebutted this averment we without considering the classification of those products, remand the question of their classification to the Adjudicating Authority.
(i) Shahnaz Husain Shatonic
(ii) Shahnaz Husain Pain Reliver Oil
(iii) Shahnaz Husain Muscle Relaxant oil
(iv) Blue Balm
(v) Shahnaz Husain Cough Syrup
(vi) Shahnaz Husain's Digestive Churn
(vii) Isbgoal (viii) Dhanvantara Tel
(ix) Bala Tel (x) Dasmool Kwath Churn
(xi) Rasandi Kuath Churn
(xii) Kshir BalaTel (xiii) Dasmool Tel (xiv) Chandanadi Tel
(xv) Chawanpryash 13.9 Thus we hold that except the products mentioned in Para 13.8 of this Order, all the impugned products manufactured by the Appellants are not Ayurvedic medicines falling under Heading No. 30.03 of the Tariff.
13.10 The decision in the case of Himtaj Ayurvedic Udyog Kendra is not applicable to the facts of the present matters. In the said case, the Larger Bench of the Tribunal observed that there are sufficient materials to support the contention of the Appellants that its product is known as Ayurvedic 'medicament' in common parlance. One of such materials was the Chief Chemist's Report to the effect that the product is an Ayurvedic medicament and further the Allahabad High Court has held 'Himtaj Oil' as a medicinal oil in a Sales Tax matter. In the present matter Dr. S.K. Sharma, Adviser (Ayurveda), Department of Indian System of Medicine and Homeopathy has also opined that the products are predominantly sold as Ayurveda/herbal cosmetics but not as patent proprietary Ayurvedic medicines. In Ishaan Research Lab, Case, the Tribunal went by the Report of Dr. V.N. Panday who had given his views on the products and the Tribunal found that some of the products were intended to cure certain ailments or diseases which is not so in the present matters.
14.1 Now we come to the question whether M/s. Shahnaz Ayurvedics and M/s. Shahnaz Cosmetics are related persons under Section 4 of the Central Excise Act at the relevant time. It is not in dispute that M/s. Shahnaz Hussain is the proprietress of Shahnaz Ayurvedics and she alongwith her son Sameer Hussain are the partners of Shaherb Cosmetics. It is also not in dispute that Shahnaz Ayurvedics sells approximately 97% of its goods to Shaherb Cosmetics. It has been held by the Supreme Court in Calcutta Chromotype Ltd. v. Commissioner of Central Excise, 1998 (60) ECC 1 (SC); 1998 (99) ELT 202 (SC) that ".....onceit is found that persons behind the manufacturer and the buyer are the same, it is apparent that buyer is associated with the manufacturer, i.e. the assessee and then regard being had to the common course of natural events, human conduct and public and private business it can be presumed that they have interest directly or indirectly, in the business of each other.......It is, however, difficult to lay down any broad principle to hold as to when corporate veil should be lifted or if an (sic) doing that, could it be said that the assessee and the buyer are related persons. That will depend upon the facts and circumstances of each case and it will have to be seen who is calling the shots in both the assessee and the buyer. When it is the same person the authorities can certainly fall back on the third proviso to Clause (a) of Section 4(1) of the Act, to arrive at the value of the excisable goods. It cannot be that when the same person incorporate two companies of which one is the manufacturer of excisable goods and the other is the buyer of those goods, the two companies being separate legal entities, the Excise authorities are barred from probing any thing further to find out who is the person behind these two companies."
14.2 The Apex Court found it difficult to accept such a narrow interpretation. In the present matter the Commissioner, after discussing the various materials brought on record specifically the financial accommodation allowed to Shaherb Cosmetics, has given his findings that the manufacturer (Shahnaz Ayurvedics) and the buyer (Shaherb Cosmetics) are in fact the same person. We do not find any reason to differ from the said findings in view of the judgment of the Supreme Court in Calcutta Chromotype case. M/s., Shaherb Cosmetics has been created by Ms Shahnaz Hussain only with her son as another partner to buy the goods manufactured by her as manufacturer. As per the definition of 'related person' in Section 4(4)(c) of the Act, when an assessee is so closely associated with another person, directly or indirectly, in the business, then it can be said that they are related persons. In the present matters, the relationship between M/s. Shahnaz Ayurvedics and M/s. Herbal Cosmetics is such that they have mutual interest in the business of each other. The facts and circumstances clearly show that there is mutuality of interest between the two firms as 97% of the products of Shahnaz Ayurvedics are sold to Shaherb Cosmetics. Moreover, M/s. Shaherb cosmetics are meeting the expenses for advertisement, sale and distribution of the products of M/s. Shahnaz Ayurvedics. The Adjudicating Authority has given his findings which have not been controverted by the Appellants that M/s. Shaherb Cosmetics were mentioned as suppliers of Shahnaz Ayurvedic products in the deeds of agreement by M/s. Shaherb with the various distributors and Shaherb Cosmetics were responsible for all the key decisions relating to sale and distribution of the impugned products. The decision in the case of Besta Cosmetics is not applicable as there was only a common director in manufacturing company and the buyer company. We, therefore, uphold the findings in the impugned Order that both M/s. Shahnaz Ayurvedics and M/s. Shaherb Cosmetics are related persons.
15. The third issue relates to the invocation of extended period of limitation for the purpose of demanding duty of excise. The learned Advocate has contended that the Department was aware of all the facts regarding their products being described as cosmetics and beauty care products as the dispute about their classification had been raised in 1987 after the officers had visited their premises and no new facts have come to light. There is force in this contention in as much as the show cause notice was issued alleging that the products manufactured by them were beauty or make up preparations/preparations for the care of skin/preparation for use on hair and preparation for dental hygiene and not Ayurvedic medicines. The Additional Collector, under Adjudication Order dated 29.8.1989, had held that their products were Ayurvedic Medicines. The Department has further approved the classification lists filed by M/s. Shahnaz Ayurvedics after first ordering provisional assessments. However, we observe that there has been suppression and wilful mis-statement of the assessable value of the product. It is not the case of the Appellants that the fact of M/s. Shaherb Cosmetics, being related person, was known to the Department at all. This fact has been suppressed from the Department which makes the provisions of Proviso to Section 11A(1) of the Central Excise Act invocable. Once the extended period of limitation is invocable for demanding the duty, the demand of duty can be made by the Revenue on all counts.
16. Revenue has also filed eight appeals against the Order-in-Original Number 16/98 dated 7.8.99 on the ground that as no duty had been paid by the assessee the question of its inclusion in the assessable value does not arise and consequently no duty is deductable from the price of the goods. This issue stands decided by the Larger Bench of the Tribunal in the case of Sri Chakra Tyres Ltd. v. Commissioner of Central Excise Coimbatore, Madras, 2002 (80) ECC 588 (LB) : 1999 (32) RLT I (CEGAT-LB) wherein the Larger Bench has as held under;
"Wholesale price is the total consideration received by as assessee against sale of excisable goods in wholesale trade. Wholesale price will include the element of duty payable on any goods because such duty forms part of the consideration for sale of the goods according to terms of sale of the goods. If any further demand of duty is created against an assessee and such further demand of duty cannot be passed on to a customer in view of the terms of sale of any goods between the assessee and a customer, the original consideration (including duty, if any) received by an assessee for sale of the goods in wholesale trade, has to be taken as cum-duty price for the purpose of demand of higher duty subsequently. Any hypothetical consideration that cannot, in our opinion, be made the basis for non-abatement of differential duty from the realised sale price. We have to take into account the facts as they are, now what they might have been. Total duty proposed to be demanded shall have to be abated from the cum-duty price actually received and liable to be received as a consideration for sale of goods. This is the mandate of Sub-section 4(d) (ii)."
Thus following the ratio of the said decision of the Larger Bench of the Tribunal we find no reason to interfere with this finding of the Commissioner contained in Paragraph 64 of the Order-in-Original No. 16/98. Accordingly, all the eight appeals filed by the Revenue are rejected.
17.1 As the excisable goods manufactured by M/s. Shahnaz Ayurvedics have been removed without payment of proper duty and the assessable value has been not determined correctly, penalty is imposable on them. For the same reason penalty is also imposable on M/s. Shaherb Cosmetics under Rule 209 A of the Central Excise Rules as they have dealt with the excisable goods which they knew were liable to confiscation. We, however, observe that the Commissioner, under Order-in-original No. 16/98 has imposed penalty on M/s. Shahnaz Ayurvedics, Okhla Industrial Area, New Delhi only under Section 11AC of the Central Excise Act in respect of goods removed during the period from 1.2.1992 to 30.9.1996. It is settled law that penalty under Section 11AC of the Act cannot be imposed for a period prior to 28.9.96, the date on which Section 11AC was inserted in the Central Excise Act. [Marcandy Prasad Radhakrishna Prasad Pvt. Ltd. v. Commissioner of Central Excise 1998 (102) ELT 705]. Accordingly penalty imposed on M/s. Shahnaz Ayurvedics, New Delhi under Order No. 16/98 is set aside. For the same reason, interest under Section 11AB also cannot be charged. We, therefore, set aside the demand of interest under Section 11 B from M/s. Shahnaz Ayurvedics, New Delhi.
17.2 Ms. Shahnaz Hussain is the proprietress of M/s. Shahnaz Ayurvedics and as such penalty under Rule 209 A of the Act cannot be imposed on her. Accordingly, penalty imposed on her under Order No. 16/98 is also set aside.
17.3 As far as M/s. Shahnaz Ayurvedics, NOIDA are concerned, the period involved is 1.3.1992 to 31.10.1996. As some period involved is after the insertion of Section 11AC of the Act, we remand the aspect of imposition of Penalty for the period Section 11AC was in force to the jurisdictional Commissioner. The demand of interest under Section 11AB of the Act is also remanded to the jurisdictional Commissioner, 17.4 Penalty on M/s. Shaherb Cosmetics is imposable which we uphold.
18. Penalties have also been imposed on M/s. Shaherb Cosmetics, M/s. Shahnaz Ayurvedics and Ms. Shahnaz Hussain. For the reasons mentioned in Para 17.2 of this Order, we set aside the penalty imposed on M/s. Shahnaz Hussain. Penalty is imposable on both M/s. Shahnaz Ayurvedics and M/s. Shaherb Cosmetics, However, the penalty imposed is on higher side as there is no warrant in the said proceedings to impose penalty equivalent to the amount of duty and those show cause notices involved in these proceedings are for the subsequent period within six months time limit. We reduce the same as under:-
(i) M/s. Shahnaz Ayurvedics Rs. 10 lakhs
(ii) M/s. Shaherb Cosmetics Rs. 1 lakh Interest under Section 11AB of the Act is not demandable as these show cause notices were issued after issue of show cause notice dated 28.2.97 and that too for subsequent period and as such it cannot be claimed by Revenue that duty was not paid /short paid by reasons of fraud, suppression etc. We, therefore, set aside the demand for interest under Section 11AB of the Act. As the amount of duty involved is more than Rs. 1 lakh, land building, plant and machinery used in the factory is confiscatable. We, however, reduce the amount of redemption fine to Rs. 1 lakh only.
19. The amount of Central Excise duty under both the impugned orders No. 16/98 dated 7.8.98 and 60 to 62/98 dated 24.11.98 will be recomputed by the Commissioner which will be payable by M/s. Shahnaz Ayurvedics, New Delhi and NOIDA.
20. All the appeals are disposed of in the above manner.